Emerging Markets

Want Safety? Head To Brazil

Emerging market bonds are all the rage thanks to low debt loads and fast growth.

Fears that Greece's debt crisis would soon spread across Europe gripped markets across the world this week, but even that failed to deter the flow of cash into emerging-markets.

During a turbulent week in which Standard & Poor's lowered Portugal and Spain's credit ratings and labeled Greece's debt junk, funds that lend to emerging market borrowers received a new $1.22 billion from investors, according to data from fund tracker EPFR Global. That brought this year's haul to a record $12.8 billion, with $5 billion of it raised in April. The most popular destinations: Brazil, Mexico, Russia and Turkey.

Europe's troubles have made emerging markets look like safe havens. Greece's debt crisis has highlighted the risks of running large budget deficits and piling up debts, said Brad Durham, managing director of EPFR Global. Developing countries' now look more appealing because many carry little debt compared to Greece, Portugal or even the U.S.

It's a curious twist on the flight-to-quality trade. When the financial crisis hit, money raced to the safety of U.S. assets. Nowadays, nervous investors still flock to U.S. Treasury debt, but they also seek safety in Asia and South America. Compared with developed countries in Europe, Brazil and other emerging-markets offer higher bond yields along with better-looking budgets and stronger growth. The International Monetary Fund forecasts that the U.S., Japan and other "advanced economies" will collectively expand 2.3% this year. Brazil, Russia and other developing countries are projected to grow 6.3%.

Emerging-market funds have also claimed the bulk of cash handed to equity funds: $15.2 billion out of the $20.6 billion given to all stock funds this year, according to EPFR.